On the multinomial logit model

Abstract

We show that the Multinomial Logit model of bounded rational choice can be derived in the same way as the Gibbs-Boltzmann distribution in statistical physics. In particular, this model describes the behavior of a thermodynamic agent (which is an agent whose utility function depends on a very large number of variables) with respect to a small subset of variables `weakly interacting' with the others. We also show that the same model is obtained if entropic control costs or information costs are introduced, in which case the temperature like parameter can be considered as the price of (negative) entropy.